As mention from my first article, economics is separated into two different
types. It is divided into microeconomics and macroeconomics. Microeconomic is
the studies individuals and decisions of businesses. Which means that it focus
on internal of an organization. Examples are, the employees, managers and other
factors. On the other hand, macroeconomic focus on the external forces that
affect a business. Examples are account taxes, regulations created by
government, and international trading status.
Increase or decrease in government subsidies will cause a big impact on
a country’s economy. Therefore, external force for a business is very
important. Petroleum is a very important source in this world. Without petrol,
a lot of work cannot be done, car will not be able to move and machines can’t
operate properly. Hence, we can categorize petroleum as a necessity product.
Petroleum must be present so that we are able to drive our vehicles to work for
our living.
There are 3 types of pump that are
available in Malaysia. Diesel is one of them, and the other two are RON95 and
RON 97. Diesel is a type of leaded petrol, while RON95 and RON97 are unleaded
petrol. Back then, in March 2012, the government announced that the subsidy for
RON95 will be increased by 10 cents per liter. This news is a relive for
everybody in the society because back in December 2011, RON95 pump price was
increased by 5 cent per liter. The demand for petroleum is inelastic. Regardless
of the price increased in petroleum, people will still continue buying it
because their vehicles can’t move without petroleum. Even people who are
against the increase of petroleum price will also purchase petroleum from a gas
station because they have no other choice. Petroleum and vehicles have
complementary relationship. If only vehicle is present, without petroleum,
vehicle cannot move. Back in March 2012, according to the Domestic Trade and
Consumer Affairs Minister Datuk Shahrir Samad, he said: “The ceiling price of
petrol will remain at RM2.70 per liter until year-end.” But as of September
2012, price of RON97 have been increased to RM3.00 per liter. Whenever the
government imposes an increase in price of petroleum, consumer will be unhappy
about it. But, there’s reason behind the increase of price. Governments are
trying to send out message to the consumer that petroleum is running out. Car-pooling
and use of public transports are highly recommended by the government. Lets say
that petroleum are going to deplete in 40 years, government all over the world
will try to reduce usage of petroleum to preserve it. Government will use
methods like setting a high price floor so that people will practice
car-pooling or use public transport more frequently.
Above is a demand and supply graph
showing the relationship between the quantity and price of petroleum. When the
production cost of Petroleum increases, it will shift the supply curve to the
left. This will not create any movement along the supply; it will only shift
the supply curve. The equilibrium price and quantity is at point E1 at first.
The shift of supply curve is shown with Supply Curve 1 to Supply Curve 2 due to
the increase in production cost. When cost of production is high, the
equilibrium price will begin to increase. At the same time, the equilibrium
quantity will decrease. The quantity demanded will decrease because of the
increase in price of the product. This is shown in the movement of the demand
curve in the graph from point Q1 to Q2. Due to the increase in price of the
product, the new equilibrium price and quantity is at point E2.
There is no substitute product for
petroleum. But, we’re living in an advance technological era where fuel
efficiency vehicles like the hybrid cars are available in the market. Hybrid
car can be a substitute to any normal vehicle that depends fully on petroleum. By
using hybrid cars, the consumption of petrol will be much lower as compared to
a normal car because hybrid car uses both petroleum and electric powered
engine. By combining these two power sources, hybrid cars are proven to be able
to reduce petrol consumption. Because of this fuel efficiency vehicle, the
market for hybrid car will be high. There will be a high demand for it as price
of petroleum increase. As a smart consumer, if we’re unable to change the fact
that petrol price have been increase, consumer will seek for another alternative
to reduce our burden. Consumers are able to do so by selling their current
vehicle and get a hybrid car. Examples of hybrid cars that are available in the
market are Toyota Prius, Volkswagen Touareg Hybrid, Toyota Yaris Hybrid and
many more. Government can make it possible to preserve petroleum by reducing
the tax needed to import a hybrid car. When the tax needed to import a hybrid
car is reduced, the price of that particular car will decrease as well. This
will encourage consumer to change their current vehicle to a hybrid car.
It can be said that petroleum falls under
oligopoly competition. Oligopoly competition is defined as many firm being
shared by a small number of producers or sellers hence it is in a state of
limited competition. The decision of one firm will be influence by all the
other firms in the market. For example, if the price of petroleum increases in
either one of the gas station, all of the other gas stations petroleum price
will be the same. The advantage of oligopoly is having the ability to set
price. Being able to set their target price can ensure maximum profit. The
other benefit of this system will be other firms who want to enter into the market
will be very difficult. There are many type of gas station available in
Malaysia. Some of the examples of gas station are, Shell, Petronas and Esso.
As conclusion, petroleum price will
keep increasing because this is a non-renewable energy. Therefore, it will run
out. When petroleum supply is running low, price will tend to increase. For the
past 3 years, the price of petroleum has been increasing. As of today, October
2012, the price of RON97 pump has reached a peak of RM3.00 per liter. As the
price continues increasing, only the rich will be able to afford petroleum.
Therefore, the rich will get richer, and the poor will get poorer.
Khai
Phing
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